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ECB's Nowotny sees no need for rate cut, Schaeuble eyes tightening

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(Globalpost/GlobalPost)

FRANKFURT (Reuters) - A European Central Bank policymaker said he saw no reason for an interest rate cut now, while Germany's finance minister said the ECB has made clear it will hike rates once the economy improves, suggesting the bank's easing bias may be fading.

The conservative tone from Austrian central bank chief Ewald Nowotny came after a survey on Thursday showed business activity across the euro zone has picked up this month at a faster pace than expected.

"We are on a medium-term perspective," Nowotny told Bloomberg in an interview on Thursday that it published on its website on Friday. "But from my personal point of view, I would not see many arguments now for a rate cut."

"I think what has proved to be a positive strategy is to have this steady hand approach," added Nowotny, who sits on the ECB's 23-man Governing Council.

Nowotny's comments contrasted with remarks earlier this month from ECB Executive Board member Peter Praet, who stressed the bank's "easing bias". Praet holds the influential economics portfolio on the ECB board.

Asked if the economy was bottoming out in Europe, Nowotny added: "Well, yes, I think so, because we get a stream of good news now ... It is a weak recovery, but it is a recovery."

The ECB Governing Council discussed cutting rates in July but decided against and instead said it would keep its interest rates at record lows for an "extended period" - its first use of forward guidance.

The ECB reiterated that guidance at its August 1 meeting. The Council holds its next policy meeting on September 5, when it will present updated staff forecasts.

Since the August 1 meeting, the euro zone economy has shown signs of perking up, easing pressure on the central bank to cut its main rates further from a record low of 0.5 percent.

GERMAN-LED RECOVERY

Thursday's purchasing managers (PMI) survey showed business activity across the euro zone picked up this month to hit its highest reading since June 2011, led by Germany as it benefited from growing demand for its exports.

"While readings from Germany were very strong, we feel the fact that France remains lukewarm will be enough to prevent a hawkish turn by the ECB," Stan Shamu, market strategist at IG markets, said in a research note.

"They will not want to derail the recovery and as a result it's hard to be overly bullish on the euro."

German Finance Minister Wolfgang Schaeuble, who is preparing for a federal election next month, said he welcomed the prospect of the ECB raising interest rates once the economy improves.

"Low rates are above all an expression of insecurity on debt markets. That cannot last forever - even if it is a relief to the federal budget," he told business daily Handelsblatt.

"The central bank has announced it will raise rates again when the economy improves. That is good," he added.

ECB President Mario Draghi said after the last meeting on rates on August 1 that rates will remain low for some time. The ECB has based this 'forward guidance' on the inflation outlook remaining subdued, and growth weak.

Nowotny said the outlook for inflation was stable.

Adding to the conservative tone of policymakers from the euro zone core, a Bundesbank board member said the ECB would have to unwind its expansive monetary policy at some stage.

"There is no question for me that an exit from the very expansionary monetary policy must and will come because such a policy cannot be permanent. It has unwanted side effects in the end," Andreas Dombret told Austria's Wiener Zeitung.

"I would not like to speculate about when and how a withdrawal will happen," he added. "Central banks will decide this in due time."

(Reporting by Paul Carrel and Eva Taylor in Frankfurt, Stephen Brown in Berlin, and Michael Shields in Vienna; Editing by Hugh Lawson)

http://www.globalpost.com/dispatch/news/thomson-reuters/130823/ecbs-nowotny-sees-no-arguments-now-rate-cut-bloomberg